In a very unsurprising move, Psystar is closing up shop. It will fire its eight employees, and be done with it. There isn't more to say, really, except this: one down, at least four to go, of which three in Europe. Good luck bullying those three, Apple. Update: Psystar's lawyers have stated that the original story wasn't true. Psystar will continue to litigate the legality of Rebel EFI through the motion process described by Judge Alsup. They will also continue the Florida case.

This notion of the 'race to the bottom' comes up all the time in discussions of Apple, and the locking of OSX to Apple branded machines. Its use is generally to suggest that there is something illegitimate or destructive about price/feature competition. A number of other notions seem to accompany it, like the idea that PCs other than Macs are commodities, that suppliers of commodities compete solely on price, and that this price competition inevitably leads to zero or wafer thin margins. Another crazed idea that accompanies this is the confusion between costs and prices. Its usually assumed that to have as a strategic objective being a low cost producer implies a marketing strategy of selling at the lowest possible price and vice versa.

Sometimes people seem to have in mind an endgame for the market which never arrives and whose absurdity is clear once its made explicit: in this apparent endgame, profits would vanish and everyone but Apple would go bust, because they would have reached the bottom. Or something, its a point of view impossible to state without parodying it.

Keynes once said that those with some oddball obsession about 'what we must do' will turn out, on investigation, to be in the grip of an obsolete and outdated economic theory. The same thing applies here. This is a vaguely left wing account of markets, competition and profitability which predates Michael Porter, and to do that, it has to be really, really old, and really, really obsolete.

In summary, PCs are no more commodities than any other consumer goods or industrial product. Suppliers of commodities do not compete solely on price, they compete on the full marketing mix, which includes price, but not as the main driver any more than in any other manufactured products. When companies compete on price (and all have to consider price as a competitive element, because all buyers pay attention to it) the result is not to make price the sole driver of their strategy, it is to make the costs of running the business into a key strategic element.

The proponents of the 'race to the bottom' usually take the view that low price = low costs = poor quality = cheap components. This is simply not true. It is perfectly likely that the low cost position in any industry is accompanies by lowering the costs of quality, which may well be done by using better quality components, but in a more efficient operation. This will then allow the delivery of more reliable products at a lower cost, which may actually enable a price premium in the marketplace! The issue is not the cost of components. The issue is the total costs of the whole operation, including shipping, marketing, warranty and customer support.

What we are seeing in the PC market is no different from any other market. We see a highly competitive market characterized by rapid innovation in both product and total company operations. It is relatively easy to enter on a small scale, you or I can set up as PC assemblers in our garage, but it is very hard to enter at a national level. Hard = expensive. Margins vary from supplier to supplier, and from year to year, its a continual struggle to correctly assess markets and product fit and price and positioning, and sometimes people get it wrong. The large suppliers enjoy advantages of scale, and are profitable. The niche suppliers are different in their total operations (not just the products) in ways their customers value, and are profitable.

There is considerable buyer power, and buyers tend to be informed - they may not be informed themselves, but they typically have access to informed judgments. This is a key factor in focusing the competition onto stuff which actually, in their view, benefits the buyers. Buyers of PCs in general are buying what they think they need, and have an accurate idea of what they are getting and what they need, either directly, or via the advice of some informed intermediary.

If you are stuck in the middle, not large share, not a low cost producer, not differentiated in your operations, you are in trouble. Over a timescale of decades, companies move in and out of the various segments of this matrix. There was a time when Apple deteriorated into being different without being differentiated - when its high costs were perceived buyers as offering no benefit. Now its a proper niche producer, it does things differently from the large share suppliers, but in way its buyers feel adds value.

There is no right or wrong way to compete in these markets. There is nothing wrong with innovation designed to enhance ones cost position. There is nothing wrong with paying attention to price as a variable in the marketing mix. There is no 'race to the bottom', there is just the normal operation of a competitive market, which has given us all innovation and freedom. Yes, if you work for one of the competing companies, it is sometimes stressful, particularly when one of the others steals a march on you.

If you doubt this, go to some PC mail order site, then go to some other consumer goods site. Ask yourself what's the difference between large appliance positioning and competition and PC positioning and competition. Answer, not a whole lot. You find all price points covered, you find a variety of features, both products are composed of standard sub assemblies, both markets have barriers to entry (different ones). There is no 'race to the bottom'. What the phrase is alluding to, with apparent indignation, is the operation of market economies.

Welcome to life in the West. That's how it is when you work in the private sector.